Banks will fight shy of signing off on your car loan application in case of an abysmal credit report, but direct lenders are more flexible with their lending practices despite strictly adhering to the FCA guidelines and accepting loan requests from subprime borrowers. Car loans with bad credit are similar to personal loans, meaning you are not under an obligation to put down an additional asset to secure against the loan.

The car you buy itself serves the purpose of collateral, enabling your lender to gain the upper hand over your car. You will have the freedom to drive your car without caring about mileage, but you will not be authorised to sell your car until the final payment of a car loan is paid off.

The money you receive is paid back over an extended period of time in fixed instalments. Once the whole amount is paid back, the title of the car will be transferred to you. Bad credit car loans are substantially exorbitant because your credibility is called into question as a result of poor financial comportment. Lenders will perceive you as a highly risky borrower, and in order to mitigate the risk involved, they charge high interest rates. Interest rates will be even higher if you are looking to apply for very bad credit loans.    

Many buyers hinge on bad credit loans to buy a car, but they have far-reaching effects on your financial situation. Experts admonish you to carefully assess your repaying capacity at the time of using these loans. Throwing caution to the wind will push you into an abyss of debt.

Here is how car loans with a poor credit rating can negatively influence your credit rating:

·        You might struggle to meet your expenses

However stellar your credit report is, you cannot avoid the upfront cost. A lender would expect you to pay at least 10% of the car’s value upfront. Unfortunately, it will double if your credit rating is not up to scratch. Paying down at least 20% of the car’s value upfront means your savings have dropped by a substantial amount, which means you will start building a nest egg from scratch.

In the meantime, if you come across some emergency, you might struggle to meet from your pocket. As a result, you would rely on a small emergency loan. Since they carry high interest rates, you may find it a bit difficult to pay them off on time. Managing payments of car loans and small emergency loans will put a lot of burden on your budget. You will certainly have difficulty meeting your regular expenses.

·        You may fall into debt

Car loans are quite expensive, especially if you are using them despite having a bad credit rating. Though you will have to put down a larger deposit, it does not mean that you can escape paying high interest. The size of monthly instalment will be bigger, no matter what. It means a large portion of your income will go towards the debt payment. As a result, you will be left with little money to meet your monthly expenses. Undoubtedly, it will become challenging to stay afloat.

Experts recommend cutting back on your discretionary expenses. Chances are you may have to opt for a bare-bones budget, which covers only essential expenses. Despite that, you may struggle with managing your expenses. This may force you to start borrowing money to meet your regular expenses. Needless to mention, you will end up accumulating debt.

·        Less flexible options

Bad credit car loans are not widely available. Banks usually do not entertain application from subprime borrowers especially if you score is lower than the bare minimum score in their criteria. Direct lenders may be disposed to give the nod to your application but at a high interest rate. Unfortunately, these interest rates can be exorbitantly high when your credit score is very poor.

Not all direct lenders provide car loans. Online lending generally lays emphasis on small emergency loans. Car loans tie you to at least a three-year repayment plan. Most lenders will be indisposed to provide car loans, especially to subprime borrowers.

The lending criteria for these loans are very strict. You will expect less leniency. In fact, lenders are not very flexible and cooperative when it comes to these loans. The repayment plan thay have decided for you must be followed strictly, no matter what. Even if there is a change in your financial circumstances, they will expect you to have another backup plan to continue with payments rather than expect them to revise your repayment plan.

·        Financial setback

Small emergency loans are paid back in full on the due date, and the repayment period does not extend more than a month. Because the whole loan is to be paid in fell one swoop within a very short period of time, you do not have to worry about the consequences of a sudden change in your financial circumstances.

Unfortunately, this is not the case with car loans. You will be tied to payments for a long period of time. It depends on the size of the loan, your income, and how long period you will be offered to settle your car loan. However, the repayment period will not be more than five years.

This is quite a long period of time. Chances are your financial situation is turned upside down. You may lose your job, or you come across another big expense. Of course, it will be challenging for you to stick to payments.

Though you have an option to reach your lender to give you a helping hand when payments are overwhelming, but the help they offer might not be substantial. If you fail to stick to payments, you will experience adverse consequences. Not only will your credit score drop, but you will also end up paying a lot more money.

Here are the ways to lower the struggle with debt payments:

·        You should carefully understand your financial situation. Make sure that you have calculated the risk as a result of abrupt changes in your financial life. Borrow money only when you are completely confident about your repaying capacity.

·        You must have an alternative repayment plan in case your income sources deplete. Side income sources will help you stick to payments.

·        You must not stop contributing to an emergency cushion even if the car loan payments are high. A nest egg will keep you from borrowing money when you are in a tight spot.

·        Make sure you do not have any other loan at the time of taking out a car loan. In fact, until you settle the debt, you should be away from borrowing money. It will make handling much easier when you have only one debt.

It can be quite challenging to get a bad credit car loan, but you must not throw caution to the wind while using them. As these loans are expensive, there is a huge risk of falling into debt. You may find it hard to build an emergency cushion once you start making payments.

In case of an unexpected change in your financial situation, you may find it hard to stick to payments. Before taking out car loans for bad credit, you should carefully analyse your repaying capacity.